Used car dealers defy high prices to post growth

Used car dealers have reversed the drop in unit sales and post a 10.2 per cent rise in the five months to May although the costs of the vehicles have remained high.

Data from the Kenya National Bureau of Statistics (KNBS) show that 23,801 second hand vehicles were sold in the period under review compared to 21,590 units the year before.

This was a reversal of the 20 per cent drop the dealers faced last year as the weakening of the shilling against major currencies increased the cost of new vehicles by about 30 per cent—keeping buyers away from the market.

Dealers have failed to lower vehicle prices despite the strengthening of the shilling, setting the stage for higher margins in a business environment where unit sales are increasing.

“Used car prices are still high but customers have started buying more,” said Robert Marete, a sales manager at Tshusho Capital which offers financing to customers of Toyota’s used cars.

“This is largely a cyclical demand as we see a lot of interest in four year intervals,” he said, adding that the move by commercial banks to lower the cost of lending will further raise demand.

The sales of used vehicle dealers had declined to 33,073 units in the eight months to August last year compared to 39,790 in 2010 because of the weak shilling which made vehicles expensive. For instance, a 1,800cc Toyota Premio now retails at Sh1.45 million up from Sh1.1 million in January last year.

The shilling weakened rapidly from a low of Sh81 to the dollar in January to the greenback in August before slumping further to an all-time low of Sh107 in mid-October.

But the dealers have maintained the high prices since last year even as the shilling strengthened to trade at an average of Sh84 to the dollar, managing to grow sales with the high price tags.

Rising demand for used vehicles saw second hand dealers beat new vehicle sellers in terms of unit growth in the first five months, with the latter taking a major hit from their relatively higher showroom prices.

Data from the Kenya Motor Industry Association (KMI) show that sales of new vehicles fell 5.1 per cent to 4,716 units from 4,960 units.

Both vehicle markets had also been hit by the high cost of credit from January but the higher prices of new vehicles has inflated the credit cost of acquiring them compared to used vehicles.

Second-hand vehicles are popular among individuals and small to medium- sized businesses which seek to cut cost of acquiring the new models that cost millions more to buy.

The bulk of new and used vehicle purchases are financed by bank loans, with the move by several banks to cut their base lending rates by 1.5 percentage points seen as a first step to much cheaper loans by year-end.

vjuma@ke.nationmedia.com